Blockchain: Investigating the Limits of the Technology
No one can deny the genius behind Satoshi Nakamoto’s blockchain. Not only did the blockchain solve cryptocurrency’s double spend problem, using the same bit of digital money in two transactions, it also opened the door for a whole new wave of innovation.
Scientist have began researching the multitude of ways that blockchain technology can be used in our lives. So far blockchain technology has been applied to the internet of things (IoT), digital identity, data management, voting and audit trails, to name a few, and this is only the beginning.
With the development of Ethereum, blockchain became a platform for smart contracts and decentralized applications (DApps). Smart contracts are agreements between buyer and seller, where the terms of the agreement are hardcoded into the program. Similar to smart contracts, a decentralized application is an application which runs on a decentralized network.
Smart contracts and DApps are an emerging field with a lot of researchers eager to see how far they can push this technology. Although still in their early stages of development, it seems promising that smart contracts and DApps will bring on a whole new wave of innovation in the fields of privacy, IoT, data management, privacy, and more.
At the same time that developers are exploring all the possibilities for blockchain technology, they are also discovering its limitations.
Limitations of blockchain
Bitcoin’s speed and scalability are nowhere near where they should be if Bitcoin is truly going to lead the decentralized cryptocurrency revolution. Currently, the Bitcoin blockchain is averaging around 7 transactions per second, compared to Visa’s 2,000 per second.
Many new ‘altcoins’ have been redesigned from the ground up to increase speed – Ripple is one cryptocurrency that can process 1,000 transactions per second – but are still far from the benchmark of companies like Visa.
This is why Bitcoin’s upcoming hardfork Segwit2X, another cryptocurrency, is focused specifically on increased transaction speed. The new blockchain will be 2 MB in size, which will help increase Bitcoin’s speed to an estimated 22 transactions per second and increase its scalability, a far cry from Visa’s 2,000 transactions per second.
Another major hurdle is the size of each block, as the blockchain increases in size with each block produced. Many of today’s cryptocurrency wallets need to sync with the network, meaning the user has to download the entire block chain and store it on a hard drive, which can be both costly and time consuming when the price of bandwidth and storage are factored in.
Going above and beyond blockchain
While some developers, like those behind Segwit2x, are trying to solve the problems inherent in the blockchain by redesigning it, other developers have decided to leave the blockchain behind entirely by coming up with new and improved decentralized ledgers.
IOTA, a cryptocurrency designed specifically for IoT, has developed the Tangle, which does away with the blockchain and replaces it with a new form of decentralized ledger called a Directed Acyclic Graph (DAG). Most notably, the tangle has a small size, no mining, no transaction fees, no blocks, almost limitless scalability and an increased level of protection against hacks.
The Tangle works by allowing each node to act as a tree rather than a block, and each tree does not have the same set of transactions in it. When a user submits a transaction, for example when they send a payment, a small amount of their computer’s CPU would be used to check two other transactions submitted by other users.
A real world example would be that when you give some money to a friend, you also check on two other people who are giving money to a friend to make sure they are not cheating. In the Tangle, your computer performs this task.
By using this process, the Tangle is able to replace the concept of miners, who usually process all transactions on a blockchain network like Bitcoin.
While there are tons of developments in the world surrounding blockchain and cryptocurrency, blockchain itself is still a new technology with both its potential and limits still being tested. The years to come will bring many new innovations and solutions to the existing limitations of the blockchain, and it will be interesting to see how DAG-based cryptocurrencies evolve alongside the blockchain, and in some cases replace it.
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